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Start PreambleStart Printed Page 49085

AGENCY:

Office of Personnel Management.

ACTION:

Final rule.

SUMMARY:

The Office of Personnel Management (OPM) is issuing final regulations dealing with the use of OPM's allotment authority to allow for Federal Employees Health Benefits (FEHB) employee premium payments to be deducted on a pretax basis under section 125 of the Internal Revenue Code. The allotment regulations work in tandem with related FEHB regulations dealing with this premium conversion.

EFFECTIVE DATE:

October 26, 2001.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

SUPPLEMENTARY INFORMATION:

On July 19, 2000, the Office of Personnel Management (OPM) published interim regulations (65 FR 44643) that allowed employees to pay their Federal Employees Health Benefits (FEHB) premiums through an allotment from the employee's pay to the employing agency. Use of this allotment mechanism allows FEHB premiums to be paid with pretax dollars, as permitted under section 125 of the Internal Revenue Code. The amendments to the allotment regulations were accompanied by a separate interim rule making necessary changes in the FEHB regulations (65 FR 44644) to allow this premium conversion.

OPM received comments from one agency representative and two individual employees on the changes in the allotment regulations.

The agency comment noted that a part of the allotment regulations not amended in the interim rule contained a reference to an obsolete Treasury regulation. It recommended that this be corrected in the final regulations.

Section 550.311(a)(5) of title 5, Code of Federal Regulations, specifies that agencies must allow employees to have “up to two allotments for savings under Department of the Treasury regulations as codified at part 209 of title 31, Code of Federal Regulations.” However, the Treasury Department removed part 209 from its title 31 regulations effective on January 27, 1997. (See61 FR 68155, December 27, 1996.) Part 209 dealt with certain wage, salary, annuity, and allotment payments for credit to the accounts of Federal employees and beneficiaries generally made by paper check. These payments are now made by electronic funds transfer and are regulated by part 210. Part 210 does not impose a limit on the number of allotments for savings. Instead, it leaves the matter to the paying agency.

We are revising § 550.311(a)(5) to remove the obsolete reference to part 209 of title 31. The revised language provides that an agency must allow an employee to have “at least two allotments for savings.” Thus, the OPM regulations continue to require that agencies allow employees to have a minimum of two savings allotments, but there are no restrictions on the maximum number of savings allotment that may be permitted under an agency's discretionary authority in § 550.311(b).

An individual commenter questioned why only health insurance premium payments under the FEHB Program could be deducted on a pretax basis. The commenter is a civilian employee who is covered by certain health insurance programs established for retired military members. At the President's direction, the allotment regulations were amended to provide specifically that FEHB premiums may be deducted on a pretax basis. Section 550.311(b) provides that pretax allotments are permitted only when there is an authority (i.e., statute, Executive order, Presidential directive, or OPM regulations) specific to Federal employees. For example, certain transportation fringe benefit allotments may be made on a pretax basis as allowed by 5 U.S.C. 7905(b) and Executive Order 13150, April 21, 2000.

Another commenter expressed concern about whether Federal employees would be provided with information on the impact that pretax FEHB premium allotments would have on Social Security benefits, so that they could make an informed decision on whether to waive participation in premium conversion. In fact, prior to implementation of premium conversion, OPM provided agencies with extensive information about the premium conversion program to share with employees. That information included a sample employee handout with a section highlighting the Social Security benefit issue and a financial worksheet with a section on estimating the impact on a person's Social Security benefits. (See Benefits Administration Letter 00-215 issued by OPM's Retirement and Insurance Service on August 24, 2000.) This information also was made available on OPM's website.

These final regulations adopt the interim regulations without any changes to the amendments contained in the interim regulations. However, as described above, we are making a correction dealing with the obsolete reference to a withdrawn Treasury regulation.

E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

Regulatory Flexibility Act

I certify that these regulations will not have a significant economic impact on a substantial number of small entities because they will apply only to Federal agencies and employees.